I'm starting a small consulting business in Los Angeles. Everyone keeps telling me to form my LLC in Wyoming or Nevada to avoid California's $800 annual franchise tax.
Is this actually legit? Seems too easy. What's the catch?
Wait, so just being a CA resident triggers this? That seems aggressive.
What if I have a Wyoming LLC and only have clients outside of California?
Good point. Under AB 85, LLCs formed on or after January 1, 2021 are exempt from the $800 minimum franchise tax for their first taxable year. This applies if:
So new California LLCs get a one-year grace period. But starting year two apparently, you owe the $800 regardless of income. And if you have a Wyoming LLC doing business in CA, you still need to register as a foreign LLC and pay smh.
This is helpful but depressing. So basically if I live and work in CA, I'm paying that $800 no matter what.
Is there any legitimate reason to use a Wyoming or Delaware LLC if I'm in California?
Also worth mentioning - the FTB is not messing around. They have data sharing agreements with other states and the IRS. If you file a federal return showing LLC income and you're a CA resident, they WILL find you.
I've heard of people getting hit with 5+ years of back taxes, penalties, and interest. Not worth the risk to save $800/year.
One thing I'll add: if your business is 100% online and you're genuinely considering relocating out of state to avoid CA taxes, make sure you ACTUALLY move. The FTB is notorious for auditing people who claim to have moved but still have CA ties (house, spouse working in CA, kids in CA schools, etc.).
I know someone who "moved" to Nevada but kept their CA driver's license and still spent 200+ days per year in CA. Got hit with 4 years of back taxes plus penalties. Not worth the risk unless you genuinely relocate.
Tax attorney here. Just wanted to add a 2026 update to this thread since it keeps getting traffic and some things have changed.
First, the AB 150 pass-through entity elective tax (PTE tax) is still available for tax years through 2025 (and possibly extended). This is not a way to avoid the 800 dollar minimum franchise tax, but it is a way for LLC members to potentially deduct state taxes beyond the 10K SALT cap by having the entity pay the tax directly. This is relevant for any CA LLC member earning significant income through the entity.
Second, the first-year exemption from the 800 dollar minimum tax that several people mentioned is still in effect as of 2026 for newly formed LLCs. However, there have been discussions in the legislature about sunsetting this exemption. If you are planning to form a CA LLC, do it sooner rather than later to lock in the first-year exemption in case the law changes.
Third, and this comes up constantly in consultations: the 800 dollar minimum franchise tax is just the minimum. LLCs with total California income over 250K owe an additional fee that ranges from 900 to 11,790 dollars depending on income brackets. This surprises a lot of business owners who thought they only owed 800 per year. Make sure you understand the full LLC tax structure before making entity selection decisions.
The bottom line remains the same as everyone in this thread said: if you live and work in California, you are paying the franchise tax regardless of where you form your LLC. There is no legitimate workaround. Anyone selling you a Wyoming or Nevada LLC as a tax avoidance strategy is either misinformed or misleading you.